IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe

  • Astrid Herinckx
  • Ariane Szafarz

Exploiting cross-sectional and time-series variations in European regulations during the July 2008 – June 2009 period, we show that: 1) Prohibition on covered short selling raises bid-ask spread and reduces trading volume, 2) Prohibition on naked short selling raises both volatility and bid-ask spread, 3) Disclosure requirements raise volatility and reduce trading volume, and 4) No regulation is effective against price decline. Overall, all short-sale regulations are detrimental to market efficiency. However, naked short-selling prohibition is the only regulation that leaves volumes unchanged while addressing the failure to deliver. Therefore, we argue that this is the least damaging to market efficiency.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 12-002.

as
in new window

Length: 45 p.
Date of creation: Jan 2012
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/107635
Contact details of provider: Postal: CP114/03, 42 avenue F.D. Roosevelt, 1050 Bruxelles
Phone: +32 (0)2 650.48.64
Fax: +32 (0)2 650.41.88
Web page: http://difusion.ulb.ac.be
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chen, Crystal Xiaobei & Rhee, S. Ghon, 2010. "Short sales and speed of price adjustment: Evidence from the Hong Kong stock market," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 471-483, February.
  2. William N. Goetzmann & Evan Geov Gatev & K. Geert Rouwenhorst, 1998. "Pairs Trading: Performance of a Relative Value Arbitrage Rule," Yale School of Management Working Papers ysm109, Yale School of Management.
  3. Robert J. Shiller, 2002. "From Efficient Market Theory to Behavioral Finance," Cowles Foundation Discussion Papers 1385, Cowles Foundation for Research in Economics, Yale University.
  4. Charles M. Jones & Owen A. Lamont, 2001. "Short Sale Constraints and Stock Returns," NBER Working Papers 8494, National Bureau of Economic Research, Inc.
  5. Sharpe, William F., 1990. "Capital Asset Prices With and Without Negative Holding," Nobel Prize in Economics documents 1990-3, Nobel Prize Committee.
  6. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2008. "Which Shorts Are Informed?," Journal of Finance, American Finance Association, vol. 63(2), pages 491-527, 04.
  7. Louis Gagnon & Jonathan Witmer, 2009. "Short Changed? The Market's Reaction to the Short Sale Ban of 2008," Working Papers 09-23, Bank of Canada.
  8. Alessandro Beber & Marco Pagano, 2013. "Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis," Journal of Finance, American Finance Association, vol. 68(1), pages 343-381, 02.
  9. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
  10. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  11. Saffi, Pedro & Sigurdson, Kari, 2008. "Price efficiency and short selling," IESE Research Papers D/748, IESE Business School.
  12. Ekkehart Boehmer & Juan (Julie) Wu, 2013. "Short Selling and the Price Discovery Process," Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 287-322.
  13. Yadav, Pradeep K. & Fotak, Veljko & Raman, Vikas, 2009. "Naked short selling: The emperor`s new clothes?," CFR Working Papers 09-09, University of Cologne, Centre for Financial Research (CFR).
  14. Ariane Szafarz, 2010. "Financial Crises in Efficient Markets: How Fundamentalists Fuel Volatility," Working Papers CEB 10-052, ULB -- Universite Libre de Bruxelles.
  15. Arturo Bris & William N. Goetzmann & Ning Zhu, 2003. "Efficiency and the Bear: Short Sales and Markets around the World," Yale School of Management Working Papers ysm321, Yale School of Management.
  16. Adam C. Kolasinski & Adam Reed & Jacob R. Thornock, 2013. "Can Short Restrictions Actually Increase Informed Short Selling?," Financial Management, Financial Management Association International, vol. 42(1), pages 155-181, 03.
  17. Marsh, Ian W. & Payne, Richard, 2012. "Banning short sales and market quality: The UK’s experience," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1975-1986.
  18. Jonah B. Gelbach & Eric Helland & Jonathan Klick, 2013. "Valid Inference in Single-Firm, Single-Event Studies," American Law and Economics Review, Oxford University Press, vol. 15(2), pages 495-541.
  19. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
  20. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  21. Danielsen, Bartley R. & Sorescu, Sorin M., 2001. "Why Do Option Introductions Depress Stock Prices? A Study of Diminishing Short Sale Constraints," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 451-484, December.
  22. Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
  23. Autore, Don M. & Billingsley, Randall S. & Kovacs, Tunde, 2011. "The 2008 short sale ban: Liquidity, dispersion of opinion, and the cross-section of returns of US financial stocks," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2252-2266, September.
  24. Seraina GRUENEWALD & Alexander F. WAGNER & Rolf H. WEBER, . "Short Selling Regulation after the Financial Crisis – First Principles Revisited," Swiss Finance Institute Research Paper Series 09-28, Swiss Finance Institute.
  25. Marie Christine Adam & Ariane Szafarz, 1993. "Speculative Bubbles and Financial Markets," ULB Institutional Repository 2013/665, ULB -- Universite Libre de Bruxelles.
  26. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-68, September.
  27. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June.
  28. Andersen, Torben G, 1996. " Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility," Journal of Finance, American Finance Association, vol. 51(1), pages 169-204, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sol:wpaper:2013/107635. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.